I set out to determine if fundraising seasonality had changed from this post I published in 2014 which suggested Q2 & Q4 were best for founders.
The answer is yes. The US software Series A market has become much less seasonal since that post in 2014. I’ve plotted the data above & smoothed it to clarify the patterns. In 2013, the surge in June/July & December stand out.
After more than 14 years at Redpoint, I’m starting a new chapter.
I’m filled with optimism for the future.
The US venture capital ecosystem has grown 40x in dollars from $8b to $320b invested in 10 years. Fueled by this capital, startup company formation rates touched fifteen-year highs in 2021.
The Decade of Data is just a few years in & already it has transformed the way we do business.
Builders are re-architecting SaaS applications atop data warehouses to join data across domains in a wave that will transform software.
My laptop is faster than your cloud.
For the last ten years, the data ecosystem has focused on big data - the bigger the data set, the more exciting.
But most workloads aren’t massive. Instead of requiring a scale-out database in the sky, most analyses are faster with an optimized database on your computer that can leverage the cloud when needed.
On November 29th at 9am Pacific Time, Office Hours will host Fredrik Haga, founder & CEO of Dune.
Dune is the authoritative source of web3 data. For information on Decentralized Exchange activity, lending volumes, or even the current FTX account balances. I used Dune to make the State of Web3 Presentation.
During this Office Hours, Fredrik & I will talk about
If you’re interested to attend, please register here. As always, submit questions through the registration form & I’ll weave them into the conversation.
Let’s compare the organizational design of two hypothetical startups. Each has 4 layers in the company: CEO, VP/Director, Manager & Individual Contributor (IC).
This first company has 112 employees across those four levels. 27 in management & 85 doers. Each manager has four reports. This is called the span of control. Layer 1 is the CEO, 2 are the VPs, etc.
During one of the toughest years for technology in more than a decade, the web3/crypto segment is suffering the worst. Inevitably, this crash will evoke disillusionment in the technology & the space.
Earlier this week, FTX, a top crypto exchange became insolvent. Recently valued at $24b, FTX is the third major crypto company to collapse in 2022 due to insolvency: Three Arrows Capital & Terra complete the trio.
In these three cases, each used cryptocurrency as collateral. When the collateral’s value disintegrated, the business defaulted. FTX’s trading arm, Alameda, borrowed against FTX’s token called FTT. Terra used their currency Luna to maintain a peg for their stablecoin UST. Three Arrows borrowed against their crypto holdings to invest in Luna & defaulted on their loans when Luna crashed in value.
8% annual inflation for a startup means losing a month of runway every year.
Purchasing power erosion of this scale may entice founders with significant cash positions to explore riskier ways of generating yield.
In the mid-2000s, many startups invested their excess cash reserves in instruments called Auction Rate Securities. ARS produced a steady stream of interest payments, like savings accounts, with a higher return.
In February 2008, the ARS market seized. Startups seeking to sell their ARSs to fund burn were out of luck : no one would buy them. Runways shortened dramatically due to the market’s illiquidity.
During Office Hours with Lee Kirkpatrick, Lee recalled managing a startup through a downturn. The business cut R&D spend to conserve cash. By prioritizing sales & marketing, the company successfully lengthened runway to increase revenue, which eased the subsequent fundraising.
I wondered if a similar pattern existed in the public software markets. Actually, the opposite is true: software companies spend more on R&D (research & development) & less on Sales & Marketing (S&M) as a percent of revenue today than six years ago.
In 2017, SaaS companies reported their cost of customer acquisition had increased by 65% in the previous five year period.
What happened to these figures during Covid? We can examine the sales efficiency of public software companies to get a sense.
Since 2016, the average public software witnessed its sales efficiency winnowed from 52% to 47%, a decline of about 10%. Covid, marked in the orange rectangle, didn’t impact sales efficiency initially.
I’m watching public company earnings to identify early weaknesses in the software market. This week Microsoft, Google/ Alphabet, & Amazon reported their third quarter figures.
| Company | Q-5 CAGR | Q-4 CAGR | Q-3 CAGR | Q-2 CAGR | Q-1 CAGR | Q0 CAGR |
|---|---|---|---|---|---|---|
| Microsoft Azure | 50% | 51% | 46% | 46% | 40% | 35% |
| Google Cloud Platform | 46% | 54% | 45% | 51% | 35% | 38% |
| Amazon Web Services | 37% | 39% | 40% | 40% | 33% | 27% |
The meaningful decline in growth rates started four quarters ago is hard to ignore.